Statistics with Economics and

Business Applications

Chapter 7 Estimation of Means and

Proportions

Large-Sample Estimation
Note 10 of 5E
 Review
I. What’s in last lecture?
Point Estimation
Interval Estimation/Confidence Interval
Chapter 7

II. What's in this lecture?

Large-Sample Estimation
Read Chapter 7
Note 10 of 5E
 The Margin of Error
• In this note we assume that the sample sizes are large
• From the Central Limit Theorem, the sampling
distributions of x and p̂ will be approximately
normal under certain assumptions
• For unbiased estimators with normal sampling
distributions, 95% of all point estimates will lie
within 1.96 standard deviations of the parameter of
interest.
• Margin of error: provides a upper bound to the
difference between a particular estimate and the
parameter that it estimates. It is calculated as

1.96  std error of the estimator

Note 10 of 5E
 Estimating Means and Proportions
• For a quantitative population,
Point estimator of population mean μ : x
s
Margin of error (n  30) :  1.96
n
• For a binomial population,
Point estimator of population proportion p : p̂  x/n
p̂q̂
Margin of error :  1.96
n
pq
Assumption : np  5 and nq  5; or 0  p  2 1
Noten10 of 5E
 Example
A homeowner randomly samples 64 homes
similar to her own and finds that the average
selling price is $250,000 with a standard
deviation of $15,000. Estimate the average
selling price for all similar homes in the city.
Point estimatorof μ : x  250,000
s 15,000
M argin of error :  1.96  1.96  3675
n 64
Note 10 of 5E
 Example
A quality control technician wants to estimate
the proportion of soda cans that are underfilled.
He randomly samples 200 cans of soda and
finds 10 underfilled cans.
n  200 p  proportion of underfille d cans
Point estimator of p : pˆ  x/n  10 / 200  .05
pˆ qˆ (.05)(. 95)
Margin of error :  1.96  1.96  .03
n 200

Note 10 of 5E
Interval Estimation/Confidence
Interval
• Create an interval (a, b) so that you are fairly sure that
the parameter lies between these two values.
• “Fairly sure” means “with high probability”, measured
using the confidence coefficient, 1-a.
Usually, 1-a  .90, .95, .99

• For large-Sample size,

100(1-a)% Confidence Interval:

Point Estimator  za/2SE
Note 10 of 5E
 To Change the Confidence Level
• To change to a general confidence level, 1-a, pick a
value of z that puts area 1-a in the center of the z
distribution. Tail area a/2 z
a/2

.05 1.645
.025 1.96
.005 2.58

• Suppose 1-a = .95,

95% of the intervals

constructed in this manner will
enclose the population mean Note 10 of 5E
 Interval Estimation/Confidence
Interval
• Since we don’t know the value of the parameter,
consider Point Estimator  1.96SE which has a variable
center.

Worked
Worked
Worked
Failed

• Only if the estimator falls in the tail areas will the

interval fail to enclose the parameter. This happens
only 5% of the time. Note 10 of 5E
 Interpretation of A Confidence SticiGui
Interval
• A confidence interval is calculated from one given
sample. It either covers or misses the true parameter.
Since the true parameter is unknown, you'll never know
which one is true.
• If independent samples are taken repeatedly from the
same population, and a confidence interval calculated for
each sample, then a certain percentage (confidence level)
of the intervals will include the unknown population
parameter.
• The confidence level associated with a confidence
interval is the success rate of the confidence interval.
Note 10 of 5E
 Confidence Intervals
for Means and Proportions
• For a quantitative population,
Confidence interval for a population mean μ :
s
x  za / 2
n
• For a binomial population,
Confidence interval for a population proportion p :
pˆ qˆ
pˆ  za / 2
n
Note 10 of 5E
 Example
A random sample of n = 50 males showed a
mean average daily intake of dairy products
equal to 756 grams with a standard deviation of
35 grams. Find a 95% confidence interval for the
population average m.
s 35
x  1.96  756  1.96  756  9.70
n 50
or 746.30  m  765.70 grams.
Note 10 of 5E
 Example
Find a 99% confidence interval for m, the
population average daily intake of dairy products
for men.
s 35
x  2.58  756  2.58  756  12.77
n 50
or 743.23  m  768.77 grams.
The interval must be wider to provide for the
increased confidence that is does indeed
enclose the true value of m.
Note 10 of 5E
 Example
Of a random sample of n = 150 college students,
104 of the students said that they had played on a
soccer team during their K-12 years. Estimate the
proportion of college students who played soccer
in their youth with a 90% confidence interval.

pˆ qˆ 104 .69(.31)
pˆ  1.645   1.645
n 150 150
 .69  .06 or .63  p  .75.
Note 10 of 5E
 Estimating the Difference
between Two Means
• Sometimes we are interested in comparing the
means of two populations.
• The average growth of plants fed using two
different nutrients.
• The average scores for students taught with two
different teaching methods.
• To make this comparison,
A random sample of size n1 drawn from
A random
population 1 with mean μsample of size 
and variance n2 2drawn
. from
1 1
population 2 with mean μ2 and variance  22 .
Note 10 of 5E
 Notations - Comparing Two Means

Mean Variance Standard Deviation

Population 1 µ1 σ12 σ1
Population 2 µ2 σ22 σ2

Sample Mean Variance Standard

size Deviation
Sample from n1 s12 s1
Population 1
x1
Sample from n2 s22 s2
Population 2
x2
Note 10 of 5E
 Estimating the Difference
between Two Means
• We compare the two averages by making
inferences about m1-m2, the difference in the two
population averages.
• If the two population averages are the same,
then m1-m2 = 0.
• The best estimate of m1-m2 is the difference
in the two sample means,

x1 - x2
Note 10 of 5E
 The Sampling
Distribution of x1 - x2
1. The mean of x1 - x2 is m1 - m 2 , the difference in
the population means.
 12  22
2. The standard deviation of x1 - x2 is  .
n1 n2
3. If the sample sizes (both n1 and n 2 ) are large, the
sampling distributi on of x1 - x2 is approximat ely normal,
s12 s22
and standard deviation can be estimated as SE   .
n1 n2
Note 10 of 5E
 Estimating m1-m2
For large samples, point estimates and their margin of
error as well as confidence intervals are based on the
standard normal (z) distribution.

Point estimate for m1 - m 2 : x1 - x2

s12 s22
Margin of Error :  1.96 
n1 n2
Confidence interval for m1 - m 2 :
2
s 2
s Assumption :
( x1 - x2 )  za / 2 1
 2
Both n1  30 and n 2  30
n1 n2
Note 10 of 5E
 Example
Avg Daily Intakes Men Women
Sample size 50 50
Sample mean 756 762
Sample Std Dev 35 30

Compare the average daily intake of dairy products of

men and women using a 95% confidence interval.
s12 s22
( x1 - x2 )  1.96 
n1 n2
35 30
 (756 - 762)  1.96   - 6  12.78
50 50
or - 18.78  m1 - m 2  6.78.
Note 10 of 5E
 Example, continued

- 18.78  m1 - m 2  6.78

• Could you conclude, based on this confidence

interval, that there is a difference in the average daily
intake of dairy products for men and women?
• The confidence interval contains the value m1-m2= 0.
Therefore, it is possible that m1 = m2. You would not
want to conclude that there is a difference in average
daily intake of dairy products for men and women.

Note 10 of 5E
 Estimating the Difference
between Two Proportions
• Sometimes we are interested in comparing the
proportion of “successes” in two binomial
populations.
•The germination rates of untreated seeds and seeds
treated with a fungicide.
•The proportion of male and female voters who
favor a particular candidate for governor.
•To
A random
makesample of size n1 drawn from
this comparison,
binomial population 1 with sample
A random parameter p1. n2 drawn from
of size
binomial population 2 with parameter p2 .
Note 10 of 5E
Notations - Comparing Two Proportions
Sample Sample Sample Standard
size Proportion Variance Deviation

Sample from n1 x1 pˆ1qˆ1 pˆ1qˆ1

Population 1 pˆ1 
n1 n n
Sample from n2
pˆ 2 
x2 pˆ 2 qˆ2 pˆ 2 qˆ 2
Population 2
n2 n n

Note 10 of 5E
 Estimating the Difference
between Two Means
• We compare the two proportions by making
inferences about p1-p2, the difference in the two
population proportions.
•If the two population proportions are the
same, then p1-p2 = 0.
•The best estimate of p1-p2 is the difference
in the two sample proportions,
x1 x2
pˆ 1 - pˆ 2  -
n1 n2
Note 10 of 5E
The Sampling
Distribution of pˆ1 - pˆ 2
1. The mean of pˆ 1 - pˆ 2 is p1 - p2 , the difference in
the population proportion s.
p1q1 p2 q2
2. The standard deviation of pˆ 1 - pˆ 2 is  .
n1 n2
3. If the sample sizes (both n1 and n 2 ) are large, the
sampling distributi on of pˆ 1 - pˆ 2 is approximat ely
normal, and stanard deviation can be estimated as
pˆ 1qˆ1 pˆ 2 qˆ 2
SE   .
n1 n2
Note 10 of 5E
 Estimating p1-p2
For large samples, point estimates and their margin of
error as well as confidence intervals are based on the
standard normal (z) distribution.

Point estimate for p1-p2 : pˆ 1 - pˆ 2

pˆ 1qˆ1 pˆ 2 qˆ 2
Margin of Error :  1.96 
n1 n2
Confidence interval for p1 - p2 :
Assumption : both n1 and n 2
pˆ 1qˆ1 pˆ 2 qˆ 2
( pˆ 1 - pˆ 2 )  za / 2  are sufficient ly large so that
n1 n2 - 1  p̂1 - p̂ 2  2Note
SE10of15E
 Example
Youth Soccer Male Female
Sample size 80 70
Played soccer 65 39

Compare the proportion of male and female college

students who said that they had played on a soccer team
during their K-12 years using a 99% confidence interval.
pˆ1qˆ1 pˆ 2 qˆ 2
( pˆ 1 - pˆ 2 )  2.58 
n1 n2

65 39 .81(.19) .56(.44)
 ( - )  2.58   .25  .19
80 70 80 70
or .06  p1 - p2  .44.
Note 10 of 5E
 Example, continued
.06  p1 - p2  .44
• Could you conclude, based on this confidence
interval, that there is a difference in the proportion of
male and female college students who said that they
had played on a soccer team during their K-12 years?
• The confidence interval does not contains the value
p1-p2 = 0. Therefore, it is not likely that p1= p2. You
would conclude that there is a difference in the
proportions for males and females.
A higher proportion of males than
females played soccer in their youth.
Note 10 of 5E
 Key Concepts
I. Large-Sample Point Estimators
To estimate one of four population parameters when the
sample sizes are large, use the following point estimators with
the appropriate margins of error.

Note 10 of 5E
 Key Concepts
II. Large-Sample Interval Estimators
To estimate one of four population parameters when the
sample sizes are large, use the following interval estimators.

Note 10 of 5E
 Key Concepts
1. All values in the interval are possible values for
the unknown population parameter.
2. Any values outside the interval are unlikely to be
the value of the unknown parameter.
3. To compare two population means or proportions,
look for the value 0 in the confidence interval. If 0
is in the interval, it is possible that the two
population means or proportions are equal, and
you should not declare a difference. If 0 is not in
the interval, it is unlikely that the two means or
proportions are equal, and you can confidently
declare a difference.
Note 10 of 5E